Later on, when cash is received from another debtor, his account is not credited but the account of the first debtor is credited and cash is debited. Again later on, when cash is received from that debtor, his account is not credited but that of the second debtor is credited instead, and cash is debited.
This process goes on until the fraud is discovered.
This method of fraud is known as short banking or delayed accounting of money received or lapping. It is a method by which the past defalcations are covered up by the current receipts.
If remittances are received via cheques, then the cheques will have to be split up. This process is known as splitting cheques. By encashing the cheques, less money is credited to the debtor than was paid in, and the rest of the amount is misappropriated.
We can detect such frauds with the help of auditors. The auditor should find out what the internal check system regarding cash is. If there is any weak point, he must then probe into the matter.
The cashier should not have access to the ledger. Auditors should check the counterfoils of the receipts with the cash book, paying particular attention to the dates.